5yr gic sweet spot | Page 2 | GIC discussions | Discussion forum

Income attribution rules prohibit income splitting of joint accounts by any other than the ratio of which each spouse contributed the funds in that asset. Loonie, Norman et al are correct. Anything else is tax fraud actually.

That said, if it is known that each spouse will be continuously in the same tax bracket regardless of how investment income is assigned, the 'cost' of the fraud to Canadian taxpayers overall is zero. The problem is few people can see 'in advance' whether each spouse will remain in the 'same' MTR indefinitely. Hence the need to keep records.

On the other hand, it doesn't seem like CRA has been pursuing 'information requests' or audits on joint investment account issues in most cases, although there are Tax Court decisions where taxpayers have been 'penalized' for fudging the books. A matter of degree perhaps? Random chance?

Back to the subject at hand, I , like some others here, simply have a 5 year GIC ladder with GICs maturing every 6 months. I re-invest at the interest rate of the day. Anything else is an attempt at market timing and at best, is 50% successful. It is actually worse due to the time being out of the market. There is no 'threshold' rate for a 5 year GIC. At this time of writing, 5 year rates are actually going down, partly due to the 5 year bond going down, and partly due to decreasing demand for 5 year mortgage money. It's a mug's game.

Loonie said
I agree with Norman's caution.
On the other hand, once money gets into joint accounts, it's difficult to trace accurately.
Let's say you each put 50K into an account. Next year, 20K of it is spent. Is the remaining 80K owned 40K:40K or 30K:50K? How would you know?

I think one can allocate the withdrawals in any reasonable manner. If the $20,000 is spent paying off one spouse's credit card, then the new allocation could be 30K:50K afterwards.

Not sure if it could make a big difference. I think the allocation would stick to the funds for purposes of income attribution. If the $20,000 withdrawn were allocated against the portion for the higher-bracket spouse Alice and was then deposited into an individual account of the lower-bracket spouse Bob, income from the Bob's account would be attributed back to Alice.

Let's say Alice, being the bigger earner, is also the bigger spender - a reasonable assumption. She spends 20K out of the account, so only 30K of the remainder is hers. This helps her to lower her assets compared to Bob's, thus helping to even out their total incomes.

In our house, almost all the credit card expenses go on one card held by one person. It doesn't necessarily mean that the purchases were for that person, however. And the reason we do it this way has nothing to do with income tax.
I think that, ultimately, these things are difficult to track down, and not normally worth CRA's while.

If the person who has lower income but higher assets spends down their capital from their single-owner accounts for living costs, the couple can gradually move towards equalization of assets and more joint accounts without it being any of CRA's business. At the same time, they can save the income of the higher income earner who has lower assets. If you combine that with some judicious lump sum withdrawals from RSPs, I think you can even out the non-registered assets in time and put it all in joint accounts on a 50:50 basis.

It has been my understanding in the past that CRA is interested in accounts jointly owned by a parent and child, where the assets come 100% from the parent. Some parents are wealthier than their adult children and may try to claim this as a 50:50 account when it clearly is not.

Loonie said
Let's say Alice, being the bigger earner, is also the bigger spender - a reasonable assumption. She spends 20K out of the account, so only 30K of the remainder is hers. This helps her to lower her assets compared to Bob's, thus helping to even out their total incomes.

In our house, almost all the credit card expenses go on one card held by one person. It doesn't necessarily mean that the purchases were for that person, however. And the reason we do it this way has nothing to do with income tax.
I think that, ultimately, these things are difficult to track down, and not normally worth CRA's while.

If the person who has lower income but higher assets spends down their capital from their single-owner accounts for living costs, the couple can gradually move towards equalization of assets and more joint accounts without it being any of CRA's business. At the same time, they can save the income of the higher income earner who has lower assets. If you combine that with some judicious lump sum withdrawals from RSPs, I think you can even out the non-registered assets in time and put it all in joint accounts on a 50:50 basis.

It has been my understanding in the past that CRA is interested in accounts jointly owned by a parent and child, where the assets come 100% from the parent. Some parents are wealthier than their adult children and may try to claim this as a 50:50 account when it clearly is not.  

Thanks for your input ! This gets a lot more complicated if you have a spouse who is earning money outside Canada but who is a tax resident of Canada.